The following list includes what we consider to be the biggest potential costs a landlord may face. Yes, these 5 things are required expenses for any rental property. But minimizing the exposure to these costs can make a significant difference on the balance sheet at the end of the year.
When a home is vacant, no rent is being collected. And that’s a bad thing for landlords. An industry standard of measurement for this situation is called “Days on Market.” The fewer days on market the better. The national average for days on market is 30 days. That’s a full month of rent lost at every turn! On top of lost rent, you also have turnover costs like painting and repairs.
Two: Not Having a Strong Lease
Having a strong lease is key to protecting yourself, and your investment. You want to make sure that it outlines who is responsible for what, and properly covers your liability. Then you must hold renters to the contract that they sign. If you allow them to pay rent a day late, you become the first one to violate your own contract!
Three: Not Screening Renters Properly
Accepting a bad tenant can be costly. They may not pay their rent on time. They may not pay their rent at all. They may not take care of the home, or even worse cause damage.
The best way to minimize the chance of getting a bad tenant is through a professional screening company. Bad credit? Criminal background? Bad leasing history? You can only make an educated decision if you have all the facts.
Every home requires maintenance. The best plan is to set aside a reasonable amount of money every month to pay for things when they break or need to be updated. It’s not about if something is going to require maintenance, it’s about when something will require maintenance. Being prepared financially is the best defense for maintenance costs. You also want to make sure to perform regular upkeep maintenance on things to avoid costly emergency repairs.
Five: Lack of Knowledge
Renting a home is not a simple task. There are so many things a landlord needs to understand to be successful.
What price will the market bear for monthly rent? Too low and you aren’t getting what the home is worth. Too high and you may force longer than necessary vacancy until the price is adjusted.
There are many laws that must be followed related to rental homes. Fair Housing when interviewing and selecting renters. Understanding local laws about the process for evicting a renter. Understanding how to handle security deposits so that you aren’t commingling funds. Getting into legal trouble is expensive and time consuming.
We wrote this story because we manage hundreds of homes and know what it takes to do it properly, safely and successfully. If you need help managing your investment property, please give us a call today. We can help!